China Car Trade-In Subsidy Halted in Some Areas as Funds Run Low

China’s trade-in subsidy to boost sales of electric and fuel-efficient vehicles has been suspended in key cities across at least six provinces as funds run short and officials scrutinize the prevalence of ‘zero-mileage’ used cars.

Cities in provinces including Guangdong, Henan and Zhejiang have suspended the program, which gives consumers up to 20,000 yuan toward the purchase of a newer model car and had been scheduled to run until the end of this year, according to reports from local media including Dahe Daily.

The practice of dealers and traders purchasing new cars in bulk, registering them in order to qualify for rebates, then selling them on the used-car market without ever being driven has added to fiscal pressures and led to probes by authorities, the reports said. Regulators are studying ways to prevent such practices and ensure proper fiscal allocations before continuing to support auto consumption, the Dahe Daily reported, citing people it didn’t identify.

The cash-for-clunkers program, part of a broader trade-in package aimed at boosting retail sales to support a weakening Chinese economy, has been an important pillar for the nation’s car sales. About 70% of personal car purchases in May utilized the trade-in subsidy, broadly in line with the figure for April, according to data from the China Passenger Car Association. 

The pause to the program adds to growing challenges facing automakers in the world’s largest car market. 

The industry has found itself under growing scrutiny after an extended price war caught the attention of authorities. That includes the Ministry of Industry and Information Technology which, along with two other agencies, convened a meeting with 17 major Chinese automakers in early June to address issues including ‘zero-mileage’ used cars, Bloomberg News has previously reported.

“These cars came under scrutiny as they’re considered a tactic to fraudulently claim the subsidy,” Li Yanwei, an adviser to the China Automobile Dealers Association, said in an interview.

Guangdong and Jiangsu provinces started to strengthen the verification of second-hand car sales in May, he said. Some provinces paused their subsidy programs in June, and are re-assessing cars that have had multiple ownership transfers within a short period of time, according to Li.

By the end of May, there had been more than 4.12 million applications for the vehicle trade-in subsidy, according to the Ministry of Commerce. 

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